EUROPE-2017/09/18 1 THE BROOKINGS INSTITUTION SAUL/ZILKHA ROOM EUROPE’S WINDOW OF OPPORTUNITY: SEIZING THE MOMENT TO STRENGTHEN THE EUROZONE Washington, D.C. Monday, September 18, 2017 PARTICIPANTS: Introduction: THOMAS WRIGHT Senior Fellow and Director, Center on the United States and Europe The Brookings Institution Remarks: PIERRE MOSCOVICI Commissioner for Economic and Financial Affairs, Taxation, and Customs European Commission Moderator: DAVID WESSEL Director, Hutchins Center on Fiscal and Monetary Policy Senior Fellow, Economic Studies, The Brookings Institution * * * * * ANDERSON COURT REPORTING 706 Duke Street, Suite 100 Alexandria, VA 22314 Phone (703) 519-7180 Fax (703) 519-7190 EUROPE-2017/09/18 2 P R O C E E D I N G S MR. WRIGHT: Good afternoon. Welcome, everybody. My name is Tom Wright. I’m director for the Center for the U.S. and Europe here at Brookings, and we’re delighted to welcome everyone here to a keynote address and conversation on Europe’s window of opportunity. This event is cohosted by CUSE and also by the Hutchins Center on Fiscal and Monetary Policy and the Economic Studies program here at Brookings. We’re gathered at a particularly important time, just about a week before the German elections coming several months after very important elections in France and Holland, and also, of course, in the midst of Brexit, and so the future of Europe, the future of the eurozone, of the euro, and of the European project as a whole is something that’s very much on our minds here at Brookings and that we’re working on and we’ll continue to work on in the months that come. Today, we are very pleased to welcome Commissioner Pierre Moscovici here to speak about Europe’s window of opportunity: seizing the moment to strengthen the eurozone. The commissioner will speak for about 15 or 20 minutes on looking at the future of Europe, particularly to do with fiscal and monetary policy and some of the key choices coming ahead after the German election. After he is finished, we’ll be joined by David Wessel, who is the director of the Hutchins Center here at Brookings, who will moderate a conversation, and then we’ll leave about 15 minutes at the end for questions from the audience. So I would now like to introduce Commissioner Moscovici. He is the commissioner for economic and financial affairs, taxation and customs at the European Commission. He previously served in the European Parliament, as a minister in the French government, as minister for European affairs and minister for the economy and finance, and as a member of the French National Assembly. He is a leading voice on these issues. We are very grateful for him to visit us here during his current visit to the United States. And with that, I welcome him to the stage. Thank you very much. (Applause) MR. MOSCOVICI: Thank you, Tom. Thank you, David. Ladies and gentlemen, I’m very pleased to be here today with you. Thank you for inviting me. ANDERSON COURT REPORTING 706 Duke Street, Suite 100 Alexandria, VA 22314 Phone (703) 519-7180 Fax (703) 519-7190 EUROPE-2017/09/18 3 Half a year has passed since I last visited Washington. I usually am here twice a week -- twice a year for the usual -- no, twice a week would be a bit too much for me, but I come here twice a year for the IMF meetings and I will come back in a few days from now for those to happen. There have been many notable changes since then, as well in the U.S., but also in Europe, both on economic and political fronts. I would like to address some of the implications of these changes with you today. First, economics. And since I’m talking about the eurozone, I would say that the euro area is today enjoying a strength in economic upswing. It’s the fifth consecutive year of positive growth in Europe, but I would say that the first year where the recovery is perceived by people and seen as really solid. This recovery has been strengthening. It has been broadening across sectors and across our member states. Now today all of the member states of the eurozone and the EU are growing, growing together. For example, a country like Italy, which suffered from stagnation for almost a decade is now growing at the speed of something like 1.4 percent. GDP figures for the second quarter of 2017 confirm that the European economy is growing strongly. Our economic growth is set to be significantly stronger and we have forecast ourselves in spring. I think that figures around two percent for 2017 or maybe a bit above two percent are possible. The CB said 2.2 percent. We are going to deploy our own forecast in a few weeks from now. And the other good news, other good news is that now this recovery is creating a lot of jobs and employment is at the lowest in eight years, and confidence is at its highest in a decade. A year ago the recovery seemed, that was the title of my forecast at the time, is still fragile and uncertain. We are now, I truly believe that, on much firmer ground. I’ve been sitting in the Eurogroup and tending to those IMF meetings for the last five years, first as finance minister and now as a commissioner. In the beginning of those five years, Europe and the eurozone were obviously a problem for the world. Now, today, I think that we are really a part of the solution and that we are on the right side of history. Furthermore, political developments in Europe have also been very positive. A year ago, not so far ago, Europe was haunted by the fear of populism, and to be more precise, by populism extreme right. Some feared that the Austrian presidency would come from the extreme right. Some also feared that Mr. Wilders would become the prime minister of Netherlands. Some even feared that in my ANDERSON COURT REPORTING 706 Duke Street, Suite 100 Alexandria, VA 22314 Phone (703) 519-7180 Fax (703) 519-7190 EUROPE-2017/09/18 4 home country, France, Marine Le Pen would be president. I never did that but I thought that she would be closer than she finally was to winning the election. Today, I would say that European populism cannot be pronounced dead. That would be arrogant to say that, and I think that would be wrong, but it’s clear that they have lost quite a lot of battles, and they suffered very severe defeats. It was the case in Austria. Close election. It was the case in Netherlands and most notably in France. And that was the first time for a very long time President Macron’s platform was enthusiastically pro-European. Nobody could have imagined that having a really enthusiastic pro-European campaign would bring somebody to victory in the election in France. We must not forget that in the first round, almost 50 percent of the votes went to parties who are say rather reluctant towards Europe, but still, in the second round, it was a kind of referendum, are you in favor of the euro? Are you against? And the result was 66 versus 34. Two-thirds of the French are really now deeply involved in the eurozone and European construction. And so the Eurobarometers, the polls show that there is now a greater consensus and popularity of Europe than was the case for quite a long time. These elections gave, it’s clear, a very strong signal of support for the EU and mostly for the euro, together with the upcoming election in Germany Sunday. Maybe we’ll talk about that but I’m not worried at all about the outcome of this election because whatever happens you will have a very strongly pro-European government in Berlin. They have helped to deliver a renewed impetus for deepening our economic and monetary union. And I will focus on that since I’m quite convinced that the euro is the heart and the driving economic and political engine of Europe as a whole. If we assume, and I do, that the UK will leave the EU on the 30th of March 2019, close to now, then the eurozone will represent 85 percent of the GDP of Europe as a whole. So you see how important it is to deepen EMU. Improving economic and political conditions open clearly a unique window of opportunity for us to strengthen the euro area. But there are still questions pending. Why do we need to do it? What is the case for strengthening the economic and monetary union? First of all, President Juncker, the president of the European Commission, recalled a state of the union speech. We also have one. The parliament is the European Parliament. Last week, he believes and he recalled that the euro is destined to eventually become the currency of all EU ANDERSON COURT REPORTING 706 Duke Street, Suite 100 Alexandria, VA 22314 Phone (703) 519-7180 Fax (703) 519-7190 EUROPE-2017/09/18 5 members. This is the letter of our treaties. Some people feel surprised that he said that but that’s pure logic. In our treaties, the currency of the union is the euro, except Denmark, which has a formal opt out. Every EU country is supposed to join at one moment the eurozone. The euro area is the economic engine, as I said, of the EU and we believe that it must be opened to all member states to join when they are ready and if they wish to.